Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Magnachip Semiconductor Corp (NYSE:MX).
Magnachip Semiconductor Corp (NYSE:MX) has seen an increase in hedge fund interest of late. MX was in 24 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with MX positions at the end of the previous quarter. At the end of this article we will also compare MX to other stocks including Royce Micro Capital Trust Inc (NYSE:RMT), Bel Fuse, Inc. (NASDAQ:BELFB), and Freshpet Inc (NASDAQ:FRPT) to get a better sense of its popularity.
Follow Magnachip Semiconductor Corp (NYSE:MX)
Follow Magnachip Semiconductor Corp (NYSE:MX)
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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How have hedgies been trading Magnachip Semiconductor Corp (NYSE:MX)?
Heading into the fourth quarter of 2016, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, up by 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MX over the last 5 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Avenue Capital, led by Marc Lasry, holds the most valuable position in Magnachip Semiconductor Corp (NYSE:MX). Avenue Capital has a $34.1 million position in the stock, comprising 7.2% of its 13F portfolio. The second most bullish fund manager is Engaged Capital, led by Glenn W. Welling, holding a $32.1 million position; 11.7% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions comprise Thomas Ellis and Todd Hammer’s North Run Capital, Don Morgan’s Brigade Capital. We should note that Brigade Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, some big names have been driving this bullishness. Driehaus Capital, led by Richard Driehaus, initiated the most valuable position in Magnachip Semiconductor Corp (NYSE:MX). Driehaus Capital had $9.3 million invested in the company at the end of the quarter. David Halpert’s Prince Street Capital Management also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new MX investors: Mike Vranos’ Ellington, Jim Simons’ Renaissance Technologies, and Principal Global Investors’Columbus Circle Investors.
Let’s go over hedge fund activity in other stocks similar to Magnachip Semiconductor Corp (NYSE:MX). These stocks are Royce Micro Capital Trust Inc (NYSE:RMT), Bel Fuse, Inc. (NASDAQ:BELFB), Freshpet Inc (NASDAQ:FRPT), and ChemoCentryx Inc (NASDAQ:CCXI). This group of stocks’ market caps are similar to MX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RMT | 5 | 20670 | 2 |
| BELFB | 8 | 14973 | 0 |
| FRPT | 6 | 14287 | 0 |
| CCXI | 11 | 60448 | -1 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $161 million in MX’s case. ChemoCentryx Inc (NASDAQ:CCXI) is the most popular stock in this table. On the other hand Royce Micro Capital Trust Inc (NYSE:RMT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Magnachip Semiconductor Corp (NYSE:MX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
